The Maximum Midcap Story

January 15, 2008

A lot of people wonder how I came up with the Maximum Midcap strategy featured in the 2008 edition of The Neatest Little Guide to Stock Market Investing. It’s wildly popular with readers and onlookers because it has beaten more than 95% of all mutual funds in the past five years.

In the first edition of the book way back in 1998, I focused the permanent strategy portion of the book on traditional ways of beating the Dow Jones Industrial Average. Those usual ways are the Dow Dividend strategies, which seek to beat the overall Dow by buying the 10, 5, or fewer stocks that provide the highest dividends. It’s a good approach, but not great.

In the second edition in 2004, I discovered that by just doubling the returns of the entire Dow I could beat all of the Divend Strategies over time.

In this third edition, I took that a step further by finding an entirely new index with which to beat the Dow. What I wanted was a group of stocks that rose higher in strong markets and fell lower in weak markets. “Could there be such an index?” I wondered.

Yes.

Most people think of the market as having two distinct categories: large companies and small companies. However, there’s a third category: medium companies. Many people know that sometimes large companies do better in the market and sometimes small companies do better. What they miss is that medium companies tend to do pretty well all the time, and that gives them the best long-term performance of all the major groups of stocks.

Once I discovered that, I applied the doubling strategy that I used in the second edition of the book to come up with a way to double the midcap (medium-sized company) index. It’s been leading the industry for the past five years, from the time I first began tracking it.

Just leaving a lump sum in the strategy has worked well over time — better than 95% of mutual funds — but a simple technique to make the system even better is to send more money each month or quarter. That’s called dollar-cost averaging. Your regular money buys more shares when they’re cheap than when they’re expensive, automatically giving you an edge over longer time periods.

Maximum Midcap is ideal for that investment approach because it rises twice as much as the market and falls twice as much. The key to being confident is knowing that it always recovers. Combining extreme volatility with guaranteed recovery is a potent combination, and the new edition of my book shows you everything you need to know to put the strategy to work with your own money.

Don’t take my word for it. Look at how the strategy has done over time. Imagine what that kind of performance could have done for your retirement account!

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